Canada maintains twin deficits in fourth quarter

Fri Feb 26, 2010 12:28pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's current account deficit narrowed in the fourth quarter as it sold more oil and cars to the United States, but the government's budget shortfall did the opposite, swelling at year-end as it headed toward a record high.

The deficit in the current account, the broadest measure of international trade covering goods, services and investments, shrank to C$9.77 billion ($9.22 billion) from C$13.80 billion in the third quarter, Statistics Canada said on Friday.

It was the fifth straight deficit and disappointed market expectations for a more modest C$8.50 billion shortfall as deficits in services trade and investment income grew.

Canada now has twin deficits -- its current account and the federal budget -- after a decade or more of surpluses that had made it the fiscally strongest country in the G7 group of rich, industrialized nations.

The budget deficit grew to C$39.36 billion in the first nine months of the 2009-10 fiscal year, the government reported less than a week before it unveils its next budget. The shortfall compares with a surplus of C$373 million a year earlier.

The current account report dragged down the Canadian dollar to C$1.0606 to the U.S. dollar, or 94.29 U.S. cents, from C$1.0580, or 94.52 U.S. cents, just before the data was released.

But the currency later recovered as markets digested the details, especially that Canada returned to a goods surplus with the United States after two quarters of deficits and that the goods surplus expanded for the first time in six quarters.

Exports rebounded in the quarter, led by crude oil and passenger cars. Imports of goods also gained but to a lesser extent.   Continued...